Alabama county set for crucial talks with creditors

BIRMINGHAM, Alabama (Reuters) - Alabama's Jefferson County will start direct talks with New York creditors on Wednesday in a bid to resolve a multibillion-dollar debt crisis and avoid the biggest municipal bankruptcy in U.S. history.

County Commission President David Carrington said he and Finance Chairman Jimmie Stephens would meet "a handful" of creditors including JPMorgan Chase, Assured Guaranty and Citicorp, which is doing credit modeling over the debt.

"There is no primary sticking point. There are too many sticking points to delineate a primary one," Carrington told reporters when asked about the main obstacle to a settlement to the $3.14 billion debt.

The county has for over three years struggled to avoid a bankruptcy that would inhibit its efforts to attract investment, tarnish the state's economic reputation and possibly rattle the $3.7 trillion U.S. municipal bond market.

Jefferson County, with 660,000 residents, contains pockets of urban poverty and some of the richest zip codes in the country. It ran into debt trouble in the mid-2000s when it refinanced an upgrade to its sewer system with auction rate bonds and bond swaps. Interest on the deals spiraled in 2008, when bond insurers downgraded the county's debt.

The talks with creditors are due to get under way Wednesday morning. Stephens said that by the time he and Carrington return on Friday they should know if there is a basis for further negotiations.

The county took the decision to send the two to New York on August 12 when it unanimously rejected an offer to settle the debt.

At that time, county leaders expressed dissatisfaction with the role played in the talks by court-appointed county water manager John Young.

Technically, Young represents the Bank of New York Mellon, the trustee for the creditors, He acted as an intermediary during the talks in part because he was based in Birmingham but had established relationships with the creditors.

"If John Young appears at the negotiations he will be considered a creditor," Stephens said. "We will work in New York on what's on the table already as a basic outline and we will negotiate from that," Stephens said.

At the August 12 meeting, commissioners expressed particular dissatisfaction with the creditors' demand that litigation over corruption that led to the debt cease. They also rejected sewer rate increases proposed in the settlement.

If the county declares bankruptcy, it would surpass the bankruptcy of Orange County, California, in 1994.